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Anchor Down!-- First Circuit Court Of Appeals Affirms Insurer’s Rights To A Truthful And Complete Policy Application

October 21, 2021

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<p style="text-align: justify;">Honesty is the best (insurance) policy. In <a href="ázquez.pdf"><em>QBE Seguros v. Morales-Vázquez,</em> </a>an insurer petitioned the First Circuit to uphold the doctrine of <em>uberrimae fidei </em>an entrenched principle of maritime law that imposes a duty of “utmost good faith” on the parties to marine <span>insurance</span> contracts.</p>
<p style="text-align: justify;">The defendant, Carlos Morales-Vazquez, found himself on rough seas after he failed to disclose that he had previously grounded a boat when filing an application for an insurance policy to cover his forty-foot Riviera yacht. When Mr. Morales-Vazquez sought a separate insurance policy for his forty-eight-foot Cavileer yacht he disclosed that he had previously grounded a ship under his control eleven years prior, critical information, that he had previously excluded from his first insurance application.</p>
<p style="text-align: justify;">In October of 2014, the Cavileer yacht sustained appreciable damage from a fire. Mr. Morales-Vazquez sought to have the damages covered, and his insurer offered a settlement offer that was declined. Negotiations between the parties continued over the next few months, and Morales rejected several other settlement offers from QBE.</p>
<p style="text-align: justify;">The tides shifted, though, in May of 2015, when QBE became aware of Morales's 2010 grounding. QBE exercised its right to question Morales under oath, and Morales admitted that he had not disclosed the 2010 grounding — nor had he disclosed (in his application for the Cavileer Policy) the existence of five vessels that he previously had owned and/or operated.</p>
<p style="text-align: justify;">That examination under oath lead to the aforementioned lawsuit, in which the First Circuit examined whether the doctrine of <em>uberrimae fidei</em> was still good law. The Court traced the history of the doctrine from eighteenth century England to present day Puerto Rico. While the legal doctrine was initially developed in the United Kingdom, it was utilized by early Americans and case law regarding <em>uberrimae fidei</em> continued to develop on both sides of the Atlantic in parallel. While it was officially codified in the United Kingdom in 1906, it has never been recognized by Congress in the United States, rather it has been developed and expanded upon by federal case law.</p>
<p style="text-align: justify;">Mr. Morales-Vazquez creatively argued that shifts in United Kingdom admiralty law ought to apply to American courts. However, the Court rejected that argument swiftly, noting that “abandoning the doctrine of <em>uberrimae fidei</em> in marine insurance cases would have rebarbative consequences, both upending settled law and disrupting an industry that has long been premised on insureds telling the whole truth to insurers.”</p>
<p style="text-align: justify;">The First Circuit ultimately held that if Mr. Morales-Vazquez had been honest from the start and disclosed his previous accident to his insurer, recovery for his loss would have been smooth sailing.</p>
Thanks to Patrick Benasillo for his contribution to this post.   Should you have any questions, please feel free to contact <a href="">Thomas Bracken</a>.


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